“There is simply too much spare oil capacity. That means any lift in demand will likely be met relatively easily by an increase in supply.”
Commonwealth Bank is forecasting Brent crude will trade at $US46 a barrel through the fourth quarter of the year, just 1.6 per cent higher than it was trading on Thursday.
Since hitting a low of $US19.33 on April 21, when WTI futures turned negative, the price of Brent crude has rallied more than 130 per cent. That rally appeared to fade in the last month as oil largely tracked sideways through July with a resurgence in the number of new COVID-19 cases across the globe.
“The prospect of demand stalling is high with new COVID-19 cases still not under control,” said Mr Dhar. “That’s a key downside risk to our oil price outlook.”
Investor sentiment is also dipping, with short positions building in ICE Brent through July. Brent crude remains 31.6 per cent lower year-to-date.
Adding to the bearish outlook, the OPEC+ alliance began to ease its production cuts in August, with the collective 9.6 million barrel a day reduction through July being reduced to 7.7 million barrels a day, pumping an additional 2 million barrels daily into the market.
“While Saudi Arabia should be holding its exports stable, diverting most of its wellhead output increase toward power generation, Russia’s waterborne exports appear to be already 300,000 barrels a day higher month on month,” Citi analyst Francesco Martoccia said.
The increase in supply has come at a tricky time for the global oil market, with implied demand for total crude products falling by 1.18 million barrels a day over the last week.